UAE Central Bank: Some cheque bounce cases will remain criminal offences

Dubai: Issuing a cheque from an account and then withdrawing the balance, or intentionally writing or signing a cheque in a way that prevents it from being encashed, or requesting the bank not to encash the cheque without a valid reason such will remain criminal offences under the revised Commercial Transactions Law, the UAE Central Bank has clarified.

The law, which comes into effect on January 2, will introduce the best international practices into the country’s banking framework.

The changes consolidate the principles of justice by striking a balance between the interests of the cheque beneficiary (bearer) in fulfilling his rights as soon as possible, and the drawer’s interest in removing any criminal case filed for non-payment of the cheque, the regulator said.

The central bank has initiated a campaign to explain the changes and it is objective. It aims to:

* Raise cheque users’ awareness on the decriminalisation of issuing a cheque without sufficient fund;

* Raise cheque users’ awareness on the criminalisation of refraining from partial payment of the cheque’s amount;

* Raise cheque users’ awareness on tougher administrative penalties for issuing a cheque without sufficient fund;

* Clarify the mechanism for implementing partial payment of the cheque; and

* Clarify the procedures for partial payment of the cheque and to clarify the rights of cheque users.

Key message to banks

The Central Bank has also initiated awareness guidelines to banks and other financial institutions to clarify the penalties in the event of issuing a cheque without sufficient funds, and refusal to implement partial payment of the cheque.

When issuing a bad cheque can be a criminal offence

Despite the decriminalisation of bounced cheques, some cases will be retained as crimes to achieve the desired objectives of decriminalisation and its replacement by some civil measures. Under the amended provisions, criminalisation and fraud related to cheques are cases when requesting the bank not to cash the cheque before the due date without a legal reason such as the cheque has been lost, or the bearer was declared bankrupt.

Criminalisation will remain in cases related to fraud and misuse of cheques involving closing the account, or withdrawing the entire balance before issuing the cheque, or before presenting it to the bank for cashing. Or if the account was frozen and intentionally writing or signing the cheque in a way that prevents its cashing.

Banks have limited options

Under the amended law, banks have limited options in restricting payments on a cheque. In principle, the bank (the drawee) is obliged to pay the cheque’s value upon presentation where there are sufficient funds.

Although the law permits the bank to refrain from paying if it receives opposition to this payment, the amendment has narrowed the cases in which this opposition is permissible, thus limiting it to cases of cheque loss and bearer bankruptcy only, so that the cheque performs its intended function as a tool of payment.

Strong civil alternatives have been developed that lead to the collection of the cheque value in the simplest way, including:

* Obligating the bank to pay the cheque (at least partially); and

* Making a cheque from the drawee’s bank account with non-sufficient fund an executive document to be implemented directly through the execution judge, without resorting to lengthy legal procedures.

This means that there is no need to file a police report, or a complaint with the police and prosecution, followed by the courts. In this case, the cheque has the power of an executive bond that does not require a court ruling, which should expedite legal action, so that a bank can exercise its rights and simplify the procedures for obtaining the cheque’s value.

Penalties on non-compliance

A number of penalties have been introduced, including: withdrawing the existing chequebook from the convicted person; preventing him from having a new chequebook for a maximum period of five years; and freezing the professional or commercial activities of the legal person.

New amendments have been introduced for legal person (except for banks and financial institutions), including the imposition of a fine, licence suspension for a period of 6 months, and licence cancellation or dissolution of the legal entity for repeated violations.

Deadline for presenting a cheque

The law specifies the date for presenting a cheque for payment and stipulates that it must be presented within six months. Calculation of this period starts from the date indicated on the cheque. If the bearer does not present the cheque within the time limit for its submission, his right to claim its value shall not be forfeited.

This date has no binding force before the beneficiary or the bank, and its expiry does not preclude collection of its value from the drawee bank, as it does not result in the cheque losing its nature as a payment instrument. However, the regulator clarifies that the expiry of the cheque limits the claims of the beneficiary before the drawer.

If the drawer proves the availability of the fund over the six-month period, and the bearer does not submit the cheque to the bank to collect its value and withdraw this amount by an act not attributed to the drawer, the bearer’s right to recourse for the value of the cheque is forfeited to the drawer.

Partial payment of a cheque

Partial payment means to pay or settle part of the cheque’s value, and therefore, the drawer and all endorsers and guarantors (if any) are partially discharged. The UAE law did not require that to pay the cheque’s value, the consideration for payment at the drawee's bank should be equal to the cheque’s amount.

The cheque’s bearer may accept partial payment and postpone the remainder, if that is deemed to be in the bearer’s interest, if the drawer’s financial condition is poor, or if it is in his interest to save whatever can be saved from the debt.

If the amount available in the account is less than the amount of the cheque, the bank must make partial payment of the amount in its possession, unless the cheque bearer refuses this. In such cases, the bank shall mark each partial payment on the backside of the cheque, and give back the original cheque along with a certificate of payment to the cheque bearer (according to a mechanism being discussed with banks, and will be circulated soon).

In the event of collection through the cheque bearer/beneficiary’s bank, the latter will give a certificate of partial payment to the cheque bearer/beneficiary. The bank should keep a copy of the partially-paid cheque and a copy of the partial payment certificate issued by it.